Compliance: Realistic regulatory reform — then what?

For well over 30 years I have represented manufacturing, industrial, development, retail, ownership, lending, recycling, scrap, transportation and commercial interests in regulatory and liability programs associated with environmental law in federal and many state and local jurisdictions. Those clients have applied for construction and operating permits to construct and operate regulated processes, as well as for permits to allow the generation, treatment, storage or disposal of solid or hazardous waste. Many of those clients have been involved in administrative enforcement actions and litigation initiated by government officials or private citizens seeking relief provided by various environmental statutes. Clearly, there has been an explosion of environmental regulation this past 30 years.

Regulatory reform has received a lot of attention in political venues lately. Some have concluded that complex environmental regulation has effectively stymied the American economy, and all we need do is somehow loosen environmental regulations and jobs will essentially fall from the sky. The national economy is likely much more complicated, and my personal view is the regulation is not the problem. Rather, it is the regulator that needs some attention.

Indeed, almost all environmental programs and regulations are responses to catastrophes. The Superfund Program is a response to the conditions at Love Canal in New York. The Clean Water Act is a response to the spontaneous combustion of the Cuyahoga River in Ohio. The Clean Air Act was largely a response to acid rain generated by coal fired plants in the West and Midwest effectively denuding forests in New England. The Emergency Planning and Community Right to Know Act is a response to the accidental release of sodium iso-cyanide at a Dow Plant located in Bhopal, India. The Oil Pollution Act was a response to the rupture of the Exxon Valdez tanker in Prince William Sound. The “cradle to grave” regulation of solid and hazardous waste described in the Solid Waste Amendments to the Resource Conservation and Recovery Act include regulations associated with underground storage tanks containing “regulated substances” considered to be a major source of “pollution.” There is even a regulatory program designed to address newly discovered compounds found in the Toxic Substances Control Act.

While it is generally accurate to characterize each regulatory program as well-intentioned, it is important to acknowledge the real angst in the regulated community. But again, the angst is likely misplaced if it is directed at the regulation, and not the regulator or the largely adversarial process.

For example, a regulator in one state can accept notification of compliance from a regulated person, while a neighboring state regulator administering the same program insists on actually directing compliance, mandating pre-approval and notification, implementation and then verification of compliance. The latter process is tortured and often paced with the Agency’s schedule, without any reference to legitimate business concerns and exigencies. The latter process often produces absurd results and is remarkably inefficient compared to the former scenario, yet both programs administer the same regulatory regime, and compliance is virtually identical.

And don’t get me started on how bad regulators treat lenders. Lenders have been effectively deputized as the “environmental police” and are required to enforce statutory environmental cleanup liability pre-closing, post-closing and during operations, pre- and, of course, post-foreclosure. If lenders take too long or extend themselves to protect the value of their security — that is, acting prudently as a lender — they do so at their own peril.

The so-called Lender’s Liability Rule purports to exculpate lenders from statutory environmental cleanup liability, but only according to some very narrow and remarkably irrelevant safe harbors. More importantly, as brownfields are converted to successful commercial sites, some regulators are unable to distinguish between a lender and the operator of a site that has been successfully converted pursuant to the very brownfield programs that had been established for just that purpose. Moreover, while the various state and federal legislatures have provided an exemption from statutory environmental cleanup liability for “bona fide prospective purchasers,” many regulators refuse to acknowledge that statutory exemption for lenders.

And, the administrative process is largely adversarial. The government insists on strict compliance and negotiates from a stance of over regulating, and the regulated community insists that government agencies, too, must follow the law, and regulate only within their constitutional authority. To get a fair result, then, both sides must be well represented and pursue a vigorous dynamic — otherwise, the result tends to be lopsided and unfair, and often, the best interests of the environment is ignored.

Meaningful regulatory reform should include, within each regulatory agency, a “Lender’s” or “Operator’s Ombudsperson” — an official available to facilitate quicker review and compliance. It is an old idea — government and a representative of industry cooperating — but it is an idea that should be resurrected. The alternative of a lender abandoning its security or a site turning into a state of non-compliance is not good for anyone.

Meaningful regulatory reform just took a hit in West Virginia, however. While much of the country was focused on the George Washington Bridge, Freedom Industries apparently failed to adequately monitor a series of above ground storage tanks, and thousands of gallons of a compound known as 4-methylcyclohexanemethanol (MCHM), a chemical used to process coal, was released into the Elk River, immediately upriver from a drinking water intake servicing 300,000 citizens.

Almost immediately Congress and the governor proposed new statutes and regulations. The proposed federal law is known as the Chemical Safety and Drinking Water Protection Act and requires state inspection of industrial facilities, and mandates regular state inspections of above-ground chemical storage facilities, with the development of emergency response plans. In addition, states are provided with authority to recoup costs incurred in responding to emergencies, and individual drinking water systems are provided with financing and information to respond to these emergencies.

Even following this most recent catastrophe, meaningful regulatory reform may yet be an achievable goal. If you are interested in pursuing it with me, drop me a line. Together, we are greater than the sum of our parts.

Contributing Author

William J. Anaya

Bill Anaya is an environmental Lawyer licensed in Illinois and Indiana and heads Arnstein &...